On April 26, 2024, the US Department of Health and Human Services (HHS) issued a final rule (press release, fact sheet, FAQs) (final regulations) reinterpreting Section 1557 of the Affordable Care Act (ACA), which prohibits discrimination on the basis of race, color, national origin, sex, age or disability, or any combination thereof, in a health program or activity, any part of which is receiving federal financial assistance. The rule, which has staggered effectivity dates starting on July 5, 2024, largely finalizes the policies as proposed in HHS’s August 2022 Notice of Proposed Rulemaking (NPRM, or proposed rule), including clarifying protections for gender-affirming care, as provided by group health plans, carriers and third-party administrators (TPAs) under administrative-services-only (ASO) arrangements.

This article considers how a self-funded plan’s obligation to provide gender-affirming care is affected by the plan’s choice of a third-party administrator (i.e., under an ASO arrangement) where the ASO provider is also a licensed insurance carrier. In a previous post, we surveyed best practices for group health plans relating to gender-affirming care generally. As discussed in more detail in our related On the Subject, the final rule also includes health program and provider requirements.

IN DEPTH

OVERVIEW OF SECTION 1557 AND PAST RULEMAKING

Whether and the extent to which group health plans, their carriers and TPAs may be subject to Section 1557 has evolved through years of rulemaking. If Section 1557 applies to carriers and TPAs acting in an ASO capacity for self-funded group health plans, then the vast majority of these plans could be at least indirectly affected. This is the case because the large ASO providers are also licensed carriers that sell products on state marketplaces and also sell Medicare Advantage plans and Medicare supplement policies. But if Section 1557 applies only to carriers in their capacity as health insurance issuers, and not in their capacity as ASO providers, the obligation to provide gender-affirming care would arise only under applicable civil rights laws and not under Section 1557.

• In May 2016, under the Obama administration’s final rule, group health plans were subject to Section 1557, and carriers and TPAs were treated as covered entities. Thus, if a carrier or TPA also sold policies on a state marketplace or offered a Medicare Part C product, it could be subject to Section 1557. This rule was challenged by a group of religiously affiliated healthcare providers and states, and a federal district court in Texas vacated much of the rule.
• In June 2020, under the Trump administration’s final rule, the reach of Section 1557 was significantly narrowed to exclude sex stereotyping, gender expression and gender identity. The 2020 final rule also limited covered entities to those that received federal financial assistance and were principally engaged in the business of providing healthcare so that carriers and TPAs that offered coverage in a state’s marketplace would be subject to Section 1557 regarding their metallic-level plans, but the same carrier or TPA providing administrative services to a self-funded group health plan would not be. Similarly, group health plans that did not receive federal financial assistance and were not principally engaged in the business of providing healthcare were not subject to Section 1557. The rule was largely nullified by the US Supreme Court’s decision in Bostock v. Clayton County.
• In August 2022, the NPRM expanded the covered entity to resemble the 2016 final rule. While the final regulations do not expressly include group health plans as covered entities subject to Section 1557, they treat carriers that sell individual or group policies on a state marketplace or that offer Medicare Advantage plans or Medicare supplement policies as covered entities subject to Section 1557 when providing ASO services.

SECTION 1557’S IMPACT ON COVERED ENTITIES

Based on a preponderance of case law, including the Supreme Court’s decision in Bostock, it appears that employers must either provide gender-affirming care or risk being compelled to do so in the event of a participant claim or a government enforcement action.

Remedies for violations of federal civil rights and related laws typically include compensatory damages and injunctive relief. Punitive damages may be available where the discrimination is intentional – which would appear to be the case where the discriminatory feature is rooted in plan design. Section 1557 changes none of this. Rather, it imposes additional substantive and procedural requirements, including establishing a set of robust notice and related requirements aimed at persons with limited English proficiency (LEP) and individuals with disabilities. In addition, aggrieved parties are permitted to challenge facially neutral policies and practices.

HOW THE FINAL RULE APPLIES TO GROUP HEALTH PLANS, CARRIERS AND TPAS

Under the final regulations, federally funded covered entities that restrict an individual’s ability to receive medically necessary care, including gender-affirming care, from their healthcare provider solely on the basis of their sex assigned at birth or gender identity violate Section 1557. The final regulations also define “health program or activity” to include all the operations of an entity that is principally engaged in providing or administering health services or health insurance coverage.

The preamble to the proposed regulations makes the following observations and claims relating to the application of Section 1557 to non-covered entity group health plans that are administered by covered-entity TPAs:

• Most group health plans are not covered entities (exceptions to this rule include Employer Group Waiver Plans and Medicare Part D programs). TPAs that receive federal financial assistance are covered entities.
• The Office for Civil Rights (OCR) will conduct a case-by-case analysis in instances in which a carrier seeks to evade the application of Section 1557, e.g., by providing TPA services through an affiliate.
• The OCR does not intend to enforce Section 1557 against a TPA that administers a plan for which it is not responsible for plan design (and therefore does not participate in the violation), but when reviewing complaints, it will conduct a “fact-specific” analysis to determine the source of the violation.
• A TPA is responsible for ensuring that its actions do not run afoul of Section 1557. Where a plan is compliant on its face, but the asserted violation involves plan administration (e.g., claims), the OCR will target the TPA. (The preamble provides an example of a TPA that applies a faulty clinical standard to deny a claim involving a service that is required to be covered.)

The OCR’s views result in interpretive challenges (e.g., whether a TPA may administer a non-compliant plan design and at the same time ensure its own compliance with Section 1557).

Although the final regulations do not apply to most group health plans, they apply to most carriers and TPAs. As a result, Section 1557 will now apply at least indirectly to most group health plans. Plan sponsors and administrators should carefully review their plan designs and operations to ensure compliance by the effective dates.

EFFECTIVE DATE(S)

The final rule is generally effective 60 days after publication in the Federal Register. Covered entities must comply with the nondiscrimination in health insurance coverage and other health-related coverage (non-benefit design) provisions by the first day of the first plan year beginning on or after January 1, 2025, for health insurance coverage or other health-related coverage that was not subject to nondiscrimination requirements when the rule was published. In addition, covered entities must comply with the nondiscrimination in health insurance coverage and other health-related coverage (benefit design) provisions by the first day of the first plan year beginning on or after January 1, 2025.